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- Campbell Harvey, the Duke University professor who uncovered the inverted yield curve as a recession indicator, says his model could some day give a false positive signal.
- It's something that's top of mind right now, as the curve has univerted in recent weeks.
- But Campbell argues his model isn't broken or flashing a false signal because the same conditions from prior economic downturns are also present now.
- He says that everyone should heed the indicator's latest warning as there are other signs that a downturn is coming.
- Read more on Business Insider.[1]
Campbell Harvey, the Duke professor who pioneered the inverted yield curve's use as a recession signal, says his beloved model will break one day.
"I'm not naive about this - the model is very simple," Harvey, who is now a professor at Duke University's Fuqua School of Business, told Markets Insider in an interview. "There will be false signals."
That hasn't happened yet. A negative spread between three-month and 10-year Treasury yields - also known as ayield curve[2]inversion - has each of the seven economic recessions since 1950. It's a perfect track record that other indicators, or evenother parts of the yield curve[3], can't boast.The latest inversion occurred earlier this year when worries around a global economic slowdown and possible recession sent investors rushing into Treasurys, which have historically been viewed as safe haven assets. Since bond yields trade inversely to price, this pushed 10-year yields sharply lower, bringing the aforementioned spread into negative territory.
But there's one complicating factor: the yield curve has since uninverted[4]....